Backflush Costing
Backflush costing describes a costing
system that delays recording some or
all of the journal entries relating to the
cycle from purchase of direct materials
to the sale of finished goods.
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Backflush Costing
Where journal entries for one or more stages
in the cycle are omitted, the journal entries
for a subsequent stage use normal or standard
costs to work backward to flush out the costs in
the cycle for which journal entries were not made.
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Trigger Points
The term trigger point refers to a stage in a cycle
going from purchase of direct materials to sale
of finished goods at which journal entries are
made in the accounting system.
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Trigger Points
Stage A: Stage B:
Purchase of Production resulting
direct materials in work in process
Stage C: Stage D:
Completion of good Sale of
units of product finished goods
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Trigger Points
Assume trigger points A, C, and D.
This company would have two inventory accounts:
Type Account Title
1. Combined materials 1. Inventory:
and materials in work Raw and In-process
in process inventory Control
2. Finished goods 2. Finished Goods Control
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Trigger Points
What is the journal entry when trigger point A occurs?
Inventory: Raw and In-process Control XX
Accounts Payable Control XX
To record direct material purchased during the period
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Trigger Points
What is the journal entry to record conversion costs?
Conversion Costs Control XX
Various accounts XX
To record the incurrence of conversion costs during
the accounting period
Underallocated or overallocated conversion costs
are written off to cost of goods sold.
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Trigger Points
What is the journal entry when trigger point C occurs?
Finished Goods Control XX
Inventory: Raw and
In-Process Control XX
Conversion Costs Allocated XX
To record the cost of goods completed during the
accounting period
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Trigger Points
What is the journal entry when trigger point D occurs?
Cost of Goods Sold XX
Finished Goods Control XX
To record the cost of goods sold during the
accounting period
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Trigger Points
Assume trigger points A and D.
This company would have one inventory account:
Type Account Title
Combines direct materials
inventory and any direct Inventory Control
materials in work in process
and finished goods inventories
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Trigger Points
What is the journal entry when trigger point A occurs?
Inventory: Raw and In-process Control XX
Accounts Payable Control XX
To record direct material purchased during the period
Same as the A, C, and D example.
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Trigger Points
What is the journal entry to record conversion costs?
Conversion Costs Control XX
Various accounts XX
To record the incurrence of conversion costs during
the accounting period
Same as the A, C, and D example.
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Trigger Points
What is the journal entry to record the
cost of goods completed during the
accounting period (trigger point C)?
No journal entry.
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Trigger Points
What is the journal entry when trigger point D occurs?
Cost of Goods Sold XX
Inventory Control XX
Conversion Costs Allocated XX
To record the cost of goods sold during the
accounting period
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